New CSX Corp. CEO's salary below Hunter Harrison’s

James Foote to be paid $1.2M base with the opportunity for a $1.5M incentive bonus.
Jan. 8, 2018

Obviously, CSX Corp. isn’t paying new CEO James Foote an $84 million bonus for joining the company, as it did for his predecessor.

But beyond that special payment Hunter Harrison received as he became chief executive last year, Harrison’s contract also paid a higher salary than Foote is getting.

According to a Securities and Exchange Commission filing by Jacksonville-based CSX after it named Foote the permanent CEO last month, Foote will receive an annual base salary of $1.2 million. 

He also can earn an incentive bonus equal to 125 percent of his base salary, or $1.5 million.

That’s a bump up from the $750,000 base salary he was scheduled to earn when he became chief operating officer, but still below Harrison’s contract.

Harrison’s annual salary was $2.2 million plus a target bonus opportunity of $2.8 million.

The $84 million was not part of Harrison’s four-year employment contract but was paid to compensate him for money forfeited when he left his previous position as CEO of Canadian Pacific Railway Ltd.

Foote joined CSX in late October and was named CEO on Dec. 22, after Harrison’s death the previous week.

CSX’s latest filing does not say how long Foote’s CEO agreement will be in effect, but his October employment agreement was for four years.

ADT going public again

ADT Inc., which became public in 2012 and was taken private in 2016, is going public again.

The security company filed plans with the Securities and Exchange Commission for an initial public offering. The filing does not say how many shares will be sold but funds affiliated with Apollo Global Management LLC, which currently own the company, will continue to hold more than 50 percent of the stock, it said.

Boca Raton-based ADT is one of Jacksonville’s largest employers with more than 3,000 workers. The company employs about 18,000 people overall.

ADT says it is the largest security monitoring company in the U.S. and Canada with about $4 billion in annual revenue.

ADT was spun off from Tyco International Ltd. in October 2012 as an independent public company, with shares distributed to Tyco stockholders. 

Apollo bought the company for $6.9 billion in May 2016.

Gerdau selling steel plants

Commercial Metals Co. last week announced an agreement to buy 33 rebar fabrication facilities and four steel mills from Gerdau S.A., including its 280-employee Jacksonville mill.

Texas-based CMC painted the deal as positive for the local plants.

“We plan to invest in these facilities to create efficiencies utilizing our expertise in the latest innovations for steel manufacturing and fabrication. We look forward to welcoming the approximately 2,700 employees of these facilities to CMC,” Chief Executive Officer Barbara Smith said in a news release.

Brazil-based Gerdau said the sale is part of a transformation of its global operations.

“This deal represents an important milestone in our strategy to reduce financial leverage and focus on better return opportunities in the markets where we operate,” Executive Vice Chairman André Gerdau Johannpeter said in Gerdau’s news release.

CMC agreed to pay $600 million in cash to buy the Gerdau plants. The companies hope to complete the deal before the end of this year.

FirstAtlantic stockholders have good year

National Commerce Corp. started the new year by announcing it completed its acquisition of Jacksonville-based FirstAtlantic Holdings Inc.

Birmingham, Alabama-based National Commerce intends to continue to operate the bank’s eight branches under the FirstAtlantic Bank trade name, with the same management team.

National Commerce bought FirstAtlantic for a combination of cash and stock valued at $108 million. FirstAtlantic stockholders had a choice of receiving $17.25 in cash or 0.44 shares of National Commerce stock for each of their shares. 

With National Commerce closing 2017 at $40.25, the value of the shares issued to FirstAtlantic stockholders was $17.71 each.

FirstAtlantic closed 2017 at $17.64, before the merger was completed.

Because of the buyout, FirstAtlantic’s stock finished the year with a 57.5 percent gain, the best performance among all Jacksonville-based companies.

Another Jacksonville-based banking company, Atlantic Coast Financial Corp., rose 38.7 percent after it agreed to a buyout by Ameris Bancorp. That was the third best gain among Jacksonville companies.

CSX had the second-best gain, 53.1 percent, after a big runup in the stock in anticipation of Harrison’s impact on the company.

Rayonier AM downgraded

Rayonier Advanced Materials Inc. had the fourth best gain among Jacksonville companies last year, at 32.3 percent.

Because of that gain, Vertical Research Partners analyst Chip Dillon downgraded the maker of cellulose specialties products from “buy” to “hold” last week.

“Over the past five plus months this name has risen by 40 percent to a year-end 2017 price of $20.45, and is now just 11 percent below our $23 one-year target price,” Dillon said in his research report.

“Given this company’s volatility, we do not see sufficient upside at its current level to maintain a Buy rating,” he said.

Rayonier AM fell $1.27 to $19.28 Thursday after Dillon’s downgrade.

Black Knight is early beneficiary from tax reform

It looks like Black Knight Inc. will be an early beneficiary of the new federal income tax law, as two analysts last week upgraded the company last week in part because of the lower corporate tax rate.

Ashish Sabadra of Deutsche Bank upgraded the Jacksonville-based mortgage technology company from “hold” to “buy” and Glenn Greene of Oppenheimer upgraded it from “perform” to “outperform.”

Both analysts said they expect Black Knight’s federal income tax rate to drop from 37 percent to 23 percent this year.

“Black Knight should be one of the largest beneficiaries of tax reform within our coverage universe. Black Knight earns almost all of its earnings domestically,” Greene said in his research note.

Greene raised his earning per share estimate for this year by 22 percent to $1.92 because of the tax cut.

Sabadra raised his 2018 estimate by 27 cents to $1.95 a share and his 2019 estimate by 46 cents to $2.28.

Sabadra also said provisions in the tax law that could impact the mortgage market, including limits on deductibility of property taxes and mortgage interest, “should be manageable” for Black Knight.

The analysis of Black Knight makes you wonder what other stocks will be getting upgrades, since everybody should be raising earnings estimates based on the lower tax rates. 

But the analysts have other reasons to like Black Knight.

Black Knight dominates its field, providing processing services for about two-thirds of all U.S. first mortgage loans. 

Sabadra said market share will pass 70 percent as several new contracts are implemented, which “bodes well for cross-selling second lien mortgage servicing software, origination software, and data & analytics products.”

Jacksonville-based title insurer Fidelity National Financial Inc. last year spun off its majority stake in Black Knight, which also should help the stock, Sabadra said.

“Post the distribution to FNF shareholders, Black Knight will benefit from a less complex corporate structure and could be eligible for index inclusion,” he said.

“Due to implementation delays and refinance origination headwinds, Black Knight’s growth disappointed during 2017, and shares modestly underperformed the market,” Greene said.

“That said, shares appear the most compelling in some time, given the combination of significant tax reform accretion, a significant signed backlog, and current valuation,” he said.

Black Knight’s stock rose 16.8 percent to $44.15 last year. Sabadra set a price target of $52 and Greene set a target of $55 for the stock.

GEE Group records profit

GEE Group Inc. reported net income of $3.7 million for the fourth quarter ended Sept. 30, helped by a tax benefit of $6.4 million.

For the full fiscal year, the staffing company had a net loss of $2.4 million. Revenue rose 62 percent to $135 million, helped by acquisitions.

GEE Group is headquartered outside of Chicago, but Chief Executive Officer Derek Dewan works out of Jacksonville.

Dewan said in a news release that the company is looking for more growth opportunities.

“GEE Group has a clear and directed focus to increase organic growth while continuing to be opportunistic with potential acquisitions,” he said.